Texas Enjoys a Competitive Edge in Today's Global Economy

Lisa A. Bastian (Apr/May 08)

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This past March, the state of Texas announced an estimated 370,000 businesses will receive a tax cut of $90 million in the form of a one-year suspension of the unemployment insurance replenishment tax. Credit the state's low unemployment and strong economy for the generous gesture, says Governor Rick Perry, as both were responsible for the government collecting more money for the unemployment trust fund than what Texas needed.

What's going on in the Lone Star State? A new "Wild West" story is now being written throughout the state, with the ink drying on thousands of new business plans generated for myriad industries. And people are paying attention. Recently, the nation's leading executives touted Texas as the best state in which to do business for the third year in a row (Chief Executive magazine, January 2008). They cited its quality of life, infrastructure, low regulatory burden, and ability to control taxes and spending.

According to the Texas Workforce Commission, last year Texas created more jobs than any other state in the nation. That feat goes hand in hand with government bragging rights for some of the most economically significant relocation and expansion projects for 2007, including Rackspace Managed Hosting (5,000 jobs), Fidelity (1,535 jobs), Maxim Integrated Products (1,000 jobs), Fluor Corporation (1,000 jobs), and Dimensional Fund Advisors (800 jobs). Moreover, the state maintains it has snagged five projects with significant promised investment totals: Motiva Enterprises ($7 billion), NRG Energy, Inc. ($5.4 billion), Eastman Chemical ($1.6 billion), Microsoft ($985 million), and Citigroup ($450 million).

Competitive Economic Development ToolsFour of the largest expansion and investment projects in 2007 were awarded Texas Enterprise Fund (TEF) monies. Said to be one of the most competitive tools Texas has, TEF is used to recruit new businesses and also assist them with expansions within the state. Since TEF's creation in 2003, it has helped close the deal on projects generating more than 51,500 new jobs and $15.5 billion in capital investment.

Another successful economic development program is the Texas Emerging Technology Fund (ETF). This $200 million initiative, created by the Texas legislature in 2005, helps commercialize university research by taking it from the labs to the marketplace. To date, ETF has allocated in excess of $100 million to Texas companies and universities.

"While other states' economies have contracted, Texas' economy continues to strengthen and expand," said Governor Perry at the 2008 Texas Association of Business annual conference. "Our educated work force, reasonable regulatory environment, and economic development tools - such as the Texas Enterprise Fund - give Texas the competitive edge to compete in a global economy."

Exporting is Job OneIf Texas were a nation - and some people truly think it still is - economists say it would be on the list of the world's top-20 exporting countries. That's the prize for exporting more goods than any other state. This enviable position has been held by Texas six straight years (source: 2008 WISERTrade data). Specifically, in 2007, state exports rose to about $168 billion, an increase of 11.45 percent from the previous year.

Even when U.S. markets dim for certain items, Texas seems to be able to still find global customers through its excellent distribution network, seaports, inland ports, and long-established, worldwide connections. Currently the most popular international exports are chemicals, machinery, and agricultural products, as well as computers, electronics, and transportation equipment. It's estimated that about 20 percent of Texas' manufacturing jobs are tied to exports, as compared to 17 percent for all U.S. manufacturing jobs.

Texas' top export recipient is Mexico - over one-third of the state's annual exports worth $56 billion go there - followed by Canada. These NAFTA partners accounted for about 43 percent of the state's 2007 exports. However, Texas' export growth to its south-of-the-border neighbor slowed in 2007, as the peso's value didn't appreciate much against the dollar last year, according to an early 2008 report prepared by economists at the Federal Reserve Bank of Dallas. The state also saw fewer benefits from Mexico's maquiladora plants because demand for their products softened along with the slowing U.S. economy.

Another report by the Fed reveals that, in 2006, Mexico made up only 4 percent of the state's export growth; Canada, just 1 percent. What's happening here? In one word: globalization. Besides spurring diversification of the state's exports, it's much easier for nations to conduct international trade these days thanks to vast improvements in communication, transport systems, and various technologies.

"Over the past year, U.S. and Texas exports have been stimulated by declines in the dollar's value that have made these products less expensive in many countries," continues the Fed report. "Not surprisingly, the rise in Texas exports has been greatest where currencies have appreciated the most against the dollar. Shipments experienced double-digit growth to France, Germany, Brazil, India, Japan, Singapore, and Taiwan." In fact, Asia (excluding China) received 20 percent of the Lone Star State's exports in 2006.

Texas' ports significantly impact state and national economies and are vital trade centers. The ports of Houston, Freeport, Beaumont, Corpus Christi, and Texas City are among the top 25 U.S. ports with regard to tonnage handled, according to the Texas Ports Association (TPA). All Texas ports combined annually move an average of 317 million metric tons of cargo - or nearly 17 percent of total U.S. port tonnage. In particular, the Port of Houston is the Gulf Coast's biggest container port.

Furthermore, TPA asserts that intermodal and marine transportation make up about 10 percent - almost $65 billion - of the state's gross state product and are responsible for Texas taking in about $5 billion in local/state revenue and more than $9 billion in federal tax revenue. "Foreign imports and exports," notes TPA, mean "nearly one million jobs to Texans, over $30 billion in personal income for Texans, and business sales of over $178 billion."